The Canadian Venture Capital & Private Equity Association (the CVCA) has recently provided insights into Canadian investment trends for the first quarter of 2019 (Q1 2019). The CVCA has indicated that Private Equity (PE) deals have slowed in Q1 compared to their Venture Capital (VC) counterparts. VC investments have almost doubled since Q1 2018, whereas PE investments have declined by more than half. The CVCA has examined this trend by breaking down the latest developments from Q1 2019.
1. Overall trends in the number of deals and amount of funding
The value of VC deals in 2019 was higher than any other first quarter report since 2015. A significant factor for this increase is the number of mega-deals (worth CAD $50M+). The first three months of 2019 have already accumulated CAD $1B across 142 deals, with seven being mega-deals. These seven mega-deals made up 57% of the total amount of VC dollars invested so far this year, constituting a major departure from 2018 in which had 3 mega-deals accounted for a 34% share of the total investment in the quarter.
The majority (62%) of disclosed PE deals were for values below CAD $25M. While the average PE debt deal was 1.5 times greater than last year's quarter, the total dollar amount of all PE investments for 2019 has never been lower for a first quarter report going back as far as 2014. The amount of PE dollars invested in 2019 has dropped significantly (by 72%) since Q1 2018. The largest disclosed deal for PE investments this year was for debt financing worth CAD $100M.
2. Investments by development stages
Companies in their later developmental stages (i.e., those with a product or service that is commercially available and generating revenue) received the majority of VC investments at approximately CAD $493M. Early-stage companies also received a significant portion of VC funding (CAD $362M), followed by growth equity (CAD $138M). Although companies in their later stages were more frequently part of mega-deals, one of the highest-valued deals (worth CAD $115M) involved a company in its growth equity financing stage.
3. Most active investments by jurisdiction
Ontario-based companies are maintaining their historical trend of attracting the most funding (CAD $481M ) and number of VC deals (54). Quebec is a close second in its number of VC deals (51) but not funding (CAD $198M). Five of the top disclosed deals were with Ontario-based companies. British Columbia had fewer deals (18), but these deals were larger in size compared to deals involving Quebec-based companies. With only 18 deals compared to Quebec's 51, the discrepancy in funding was CAD $25M.
Toronto was the primary city for deal activity. Toronto had 47 VC deals worth CAD $416M, followed by Montreal (35 deals totalling CAD $146M) and Vancouver (13 deals totalling CAD $67M). PE deals followed a reverse trend where Montreal-based companies received 19% of the total funding (CAD $840M) and Toronto 15% (CAD $314M).
4. Sector hot spots
The concentration of VC investments is in the Information and Communication Technologies (ICT) (CAD $619M), Cleantech (CAD $201M) and Life Sciences (CAD $145M) sectors. The primary concentration of PE investments are also in the ICT sector (CAD $929M), with Industrial & Manufacturing (CAD $88M) and Consumer & Retail (CAD $474M) following suit.
The number and total value of VC investments continue to maintain their upward trend while their PE counterparts have been experiencing a decrease. The CVCA remains optimistic that "private equity activity will rebound in subsequent quarters." High valuation is a possible explanation for slow PE activity in Q1, which is subject to change in a fluctuating investment environment.
The author would like to thank Tiana Corovic, summer student, for her contribution to the article.
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